Current Account Dynamics, Adjustment and Capital Mobility in Bangladesh

This paper examines current account (CA) dynamics, its relationship with
the degree of capital mobility and the state of integration of the Bangladesh
capital market with the global capital market. For the period 1976-2012,
findings of AR (1) process shows a rigid CA position along with its slow
adjustment and its inflexibility against real shocks, lower degree of capital
mobility and a slow progress of capital market integration with the rest of
the world. Compared to the period of fixed exchange rate regime, lesser
degree of rigidity has been observed during the flexible exchange rate
period suggesting a smooth and flexible current account position; but shows
an increased degree of rigidity and capital immobility for the overall time
period under consideration. These findings reveal some important policy
implications in respects of current and capital account liberalization,
deregulation of domestic markets and removing entry barriers on the part of
Bangladesh to boost up FDI and remittance inflows